Who’s behaving rationally in iron ore, steel? Everybody and nobody – by Clyde Russell (Reuters U.S. – November 9, 2015)


Nov 9 (Reuters) – – It’s becoming harder to work out who are the most rational players in the global iron ore and steel markets, where contradictions are multiplying amid the persistent supply glut.

Iron ore miners and steel producers are likely to claim they are acting rationally, but both are probably guilty of selective thinking and a touch of amnesia.

Take Rio Tinto for example. The world’s second-biggest iron ore miner reiterated last week that it has no plans to cut output amid the current oversupply, which has caused spot Asian iron ore prices .IO62-CNI=SI to slump about 75 percent since the record high in February 2011.

At face value, this seems logical and rational. When you have the lowest cost mines in the world, why should you cut output, as this would simply allow higher-cost producers to take some of your market share.

“If you think for one second you can just take some volume out and no one else will actually move to fill that volume, then you are fooling yourself,” Rio’s iron ore boss Andrew Harding told a function in Perth last week.

But Harding’s rational behaviour doesn’t extend to recognising the reality that Chinese steel demand and output are most likely past their peak.

Rio insists on sticking to its view that China will reach peak steel production of about 1 billion tonnes by 2030, even though the China Iron & Steel Association (CISA), and virtually every other analyst, thinks last year’s 823 million tonnes was the high-water mark.

Rio will argue that for its forecast to be accurate, China’s steel output only has to rise at a rate of 1 percent per annum, but this ignores the current reality that 2015 consumption will see a decline in the region of about 5 percent from last year.

Iron ore imports by China are also now in negative territory for the first 10 months of 2015, following the 12.3 percent drop in October from September.

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